BUSH BACKS INCOME-TAX HIKE FOR WEALTHY<BR>

President Bush has decided to accept higher income tax rates on the wealthy in exchange for a deep cut in capital gains taxes as part of an overall deficit reduction package, Republican lawmakers said Thursday.

Rep. Bill Archer, R-Texas, a senior Republican on the tax-writing House Ways and Means Committee, emerged from a White House meeting announcing that the president was ready to end two days of confusion over his position on taxes.Bush made his decision as lawmakers struggled against an Oct. 19 deadline to come up with a $500 billion package of spending cuts and tax increases to get the deficit under control.

Archer said Bush will support raising the marginal tax rate on the wealthiest Americans from 28 percent to 31 percent, but only if Congress lowers the capital gains rate to 15 percent. Capital gains - profits from the sale of stocks, real estate and other assets - are currently taxed at the same rate as other income.

Now, even though the wealthiest taxpayers pay a 28 percent tax, those making less can pay 33 percent.

Archer said that the new proposal would seek to eliminate this apparent inequity.

Participants at the morning meeting said the new proposal would, in essence, do away with the 33 percent top rate - now paid by upper middle-class taxpayers.

Instead, there would be three distinct tax brackets. The 15 percent bracket for lower-income Americans would remain. Then, above a certain income level, the taxes for additional income would jump to 28 percent; and finally, move to 31 percent.

Archer, speaking with reporters in the White House driveway, said Bush would announce his position later in the day.

Bush's plan seemed designed to facilitate an overall budget accord. Even so, it faced an uncertain reception from Senate Republicans, many of whom oppose any increase in income tax rates, even to gain a cut in capital gains taxes.

Bush earlier in the week had indicated that he was open to a compromise trading higher taxes on the wealthy for a lower capital-gains rate. However, he then appeared to back away under pressure from GOP senators.

"He said, without equivocation, this is what we wanted to do," Archer said in comments echoed by other Republicans who attended the morning meeting.

House Republican Leader Bob Michel, R-Ill., said that Bush was "inflexible" on the new 31 percent rate "as I understand it, as of this morning."

Michel said, "The president wanted to clearly stake out where he was on that issue."

In essence, GOP lawmakers said, Bush's proposal would flatten out the so-called "bubble" in the tax code, the anomaly under which tax rates on additional income are now lower for the wealthiest Americans than they are for some who are less wealthy.

Archer said there would be roughly 4.5 million people who will get a rate reduction under the new Bush proposal - presumably those now paying a 33 percent rate.